ING: Euro to Strengthen Against Pound Sterling Today
The Euro is strengthening against the British Pound, as per the plans laid out by forecasters at ING in a note to clients released ahead of London trading.
Analysts at the Dutch bank's London unit told clients that they should not be deceived by the British Pound’s recent strength and suggest we should prepared for near-term declines.
The Euro to Pound exchange rate fell sharply on Tuesday from 0.8806 to 0.8634 after the Pound jumped on a conciliatory and from time-to-time upbeat tone delivered by Prime Minister May with regards to the Government’s intended plan on Brexit.
A lack of negative surprises (as the broad outline of the speech was known beforehand) led to a sharp rally in GBP as traders appeared happy that no new negative shots were fired.
But, on Wednesday the Euro is stronger once more, trading back up at £0.8679.
That the Euro has rebounded against Sterling should come as no surprise says analyst Petr Krpata at ING in London.
“Investors clearly preferred to focus on the what they perceived as more clarity on the Brexit strategy. Despite this, we don’t see the speech as materially changing GBP prospects,” says Krpata.
ING still see it as difficult for the UK government to agree on the new trading environment with the EU within the two years, while the jury still remains out whether all participants in negotiations will be “economically rational” or whether they will be politically driven.
“We continue to look for a very bumpy road for GBP ahead and expect more upside to EUR/GBP,” says Krpata.
ING warn the GBP may resume the weakening bias as soon as today if we see another decline in UK employment (this would further support the view that UK businesses are sitting on their hands due to the Brexit uncertainty and don’t hire new workers despite the solid growth).
“We look for EUR/GBP to move towards the 0.8700 level today,” says Krpata.
Societe Generale Reckon the Pound can Rally Further
Just to muddy the water for our readers, we can bring confirmation that strategists at Societe Generale believe the Pound can actually advance further on the Euro.
Analyst Kit Juckes has studied the real yield spreads between Germany and the UK - a strong guide of EUR vs GBP - and believes they do not support new highs in the EUR/GBP cross.
"Given our more positive view on the US dollar in coming weeks, we would advocate picking the bottom in sterling through EUR/GBP rather than GBP/USD. Fade EUR/GBP rallies above 0.89," says Juckes.
Could 0.89 be a new peak?
